Free Consent as an Essential for a valid Contract: An Analysis with special reference to Indian Cases

Author: Bhavya Dayal

INTRODUCTION

The Indian Contract Act of 1872 governs contracts in India. The Act states that no contract shall be made unless both parties are fully committed and willing to have the contract legally enforceable. As a result, the concept of free consent becomes extremely important. Section 12[1] of the Indian Contract Act expressly states that a contract must have the free consent of both competent parties in order to be legally enforceable and binding.

The definition of consent in Indian contract law is given in Section 13[2], which states that “it is when two or more persons agree on the same thing and in the same sense.” As a result, the two people must agree on the same thing in the same way. Giving consent is not enough to make a contract enforceable. Consent must be freely and voluntarily given.

Section 14[3] of the Indian Contract Act defines free consent as consent that is free of coercion, undue influence, fraud, misrepresentation, or mistake. When consent would have been given in the absence of such factors, it is said to be so caused. The goal of this concept is to ensure that the contracting parties’ decisions have been clear since the contract’s inception. As a result, consent obtained through coercion, undue influence, fraud, misrepresentation, or mistake has the potential to render the contract void.

REASERCH QUESTIONS

Several questions pop up in our minds when we study about free consent in contracts,

1. What is free consent?
2. What is coercion?
3. What is the meaning of misinterpretation?
4. What are some of the important Indian cases on free consent?

RESEARCH METHODOLOGY 

The research methodology used is secondary research, an approach which includes gathering information from secondary sources such as academic papers, journals, and reports available for public use both online and offline.  Majority of the data is collected from the internet, through multiple websites, blogs, and channels, with the sources being duly cited at the end.  After data collection, it has been combined and collated in a comprehensive and understandable format, to increase the overall effectiveness of this paper.  And the research is compiled in an impartial manner.

HYPOTHSIS

H₀ – There are no need of free consent for a contract to be valid.

H₀₁ – Section 13 of the Indian Contract Act, which states that “it is when two or more persons agree on the same thing and in the same sense”, if there is not free consent the contract won’t be valid.

ANALYSIS

The essence of these acts is the Latin phrase consensus ad idem, which means that the parties to the contract must agree. The purpose of a contract as a two way deal is defeated if neither party’s consent is free. A contract formed through free consent safeguards the validity of an agreement, providing the parties with a protective shield. It allows the parties to maintain their autonomy in defining their running policy or principle.

Concept of Consent

According to Section 13 of the Indian Contract Act, consent exists only when the parties to a contract agree on the same thing in the same sense. Consensus ad idem, or a meeting of the minds, must be at the heart of all legal contracts. This idea was developed further in the cases of Raffles vs. Wichelhaus (1864) and Smith vs. Hughes (1871).

In the case of Raffles v. Wichelhaus[4] two parties, ‘A’ and ‘B,’ entered into a contract for the sale of 125 cotton bales from Bombay by a ship named “peerless.” There were two ships with the same name, and while Party ‘A’ was thinking about one, Party ‘B’ was thinking about the other. The court ruled that neither party had reached an agreement. As a result, the contract was null and void.

In the case of the Smith vs. Hughes[5] Queen’s Bench decided that even if a party did not express his or her assent explicitly, but acted in such a way that a reasonable man would believe him assenting to the terms proposed by the promisee, he or she would be bound by the contract as if he had expressly entered into it.

Kinds of violations of Free Consent

According to the Indian Contract Act of 1872, free consent of contract parties is not obtained if it is tainted by:

Coercion

In accordance with the Indian Contract Act, 1872, coercion means, “Coercion is the committing, or threatening to commit, any act is forbidden by the Indian Penal Code (45 of 1860) or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.”.[6]

A significant factor is that the Indian Penal Code is not always applicable at the location where consent was obtained. The phrase “to the prejudice of any person whatever” is an important part of the law because it means that coercion can be directed against the prejudice of anyone, not just the party to the contract. Surprisingly, parties other than the contracting parties can also impose coercion.

Even a third party to the contract can use coercion to obtain consent,  as seen in the case of Ranganayakamma v. Alwar Setti[7] where a widow was coerced into adopting a boy and was not allowed to remove her husband’s body until the adoption was completed.

It is the responsibility of the party whose consent was allegedly coerced to demonstrate that the consent obtained from the aggrieved party was obtained through coercion.  When a party’s consent is obtained by coercion, the contract becomes voidable at the will of the aggrieved party.

In the case of Chikkam Ammiraju and Ors. v. Chikkam Seshamma and Anr[8] 1916 MWN 368 the Madras High Court ruled that threatening to commit suicide is also coercion, and the aggrieved party has the right to terminate the contract. In this case, the husband threatened his wife and son with suicide if they did not sign a sale deed in favour of his younger brother. They carried out the deed but later pleaded guilty to coercion. Because the act of committing suicide is prohibited under the IPC, the husband’s act was found to be illegal, and the consent obtained was found to be obtained through coercion.

Undue Influence

According to Section 16 of the Indian Contract Act, 1872 an influence will be considered as Undue Influence when,

• One party to the contract is in a position of trust and controls the other party wrongfully.
• Such a person uses his dominant position to gain an unfair advantage over the other.

There are two key elements of undue influence,

• The relationship trust, confidence, authority.
• Unfair persuasion careful examination of the terms of the contract.[9]

A contract is said to be induced by “undue influence” when the parties’ relations are such that one of the parties is in a position to dominate the will of the other and uses that position to gain an unfair advantage over the other. The existence of a position of authority, trust and confidence of one party over another, and the use of unfair persuasion by the party with authority are the elements that constitute coercion.

In the case of Lingo Bhimrao Naik v. Dattatrya Shripad Jamadagni[10] a mother was accused of exerting undue influence on his adopted son when he reached the age of majority in order for him to ratify the gift deeds regarding non watan property made to her daughters, as well as obstructing his ability to consult his natural father. The court ruled that the adoptive mother abused her position of authority to exert undue influence over his son in order to gain an unfair advantage in having the gift deeds ratified. Furthermore, because the adoptive son was unaware of his legal rights, the case was adjourned.

Fraud

Fraud, according to Section 17 of the Indian Contract Act, is defined as any of the following acts committed by a contracting party or its connivance or agent in order to deceive or induce a party or its agent to enter into the contract:

• The effective concealment of a fact by a person who is aware of it.
• A promise made with no intention of keeping it.
• Any other act that has the potential to deceive.
• Any act or omission that the law considers fraudulent.[11]

Silence on facts likely to affect a person’s willingness to enter into a contract is not fraud unless the circumstances of the case are such that, having regard to them, the silent person is obligated to speak or unless his or her silence is equivalent to speech in and of itself.

In the case of Bimla Bai vs Shankarlal[12] a father referred to his illegitimate son as “son” in order to save his marriage. It was determined that the father knowingly concealed the son’s illegitimacy with the intent of defrauding the bride’s parents, which amounted to fraud.

Misrepresentation

Misrepresentation can be classified into three types, according to Section 18 of the Indian Contract Act

• When a false statement of fact is made but it is believed to be true.
• When the person making the false statement violates duty and gains an unfair advantage, even if this was not the party’s intention.
• When one contracting party acts in an innocent manner, causing the other party to make a mistake(s) regarding the contract’s contents.

The three types of misrepresentation have one thing in common, misrepresentation is defined as an unintentional mistake. The burden of proof is on the party alleging misrepresentation in order to avoid the contract to demonstrate that misrepresentation was used to obtain consent. When consent is obtained by deception, it is voidable at the option of the aggrieved party.

In the case of Bhagwani Bai v. LIC[13], The court held that non-disclosure of lapsed policies could not have influenced the defendant corporation from not entering into a new policy. The court held for the plaintiff saying that it was not misrepresentation or undue advantage and order the defendant to pay the amount at the rate of 6%.

Mistake

Section 20 of the Indian Contract Act states that if both parties to an agreement are mistaken about a fact essential to the agreement, the agreement is null and void. A mistake does not invalidate consent; rather, it misleads the party, causing the consent to no longer be considered free.

Mistake of Law

When legal provisions are misunderstood by contracting parties, this is referred to as a Mistake of Law. Now, the party may be perplexed as to whether the law of the home country or the law of a foreign country applies. When a contracting party claims ignorance of the laws of the home country, the contract cannot be avoided because such an excuse is not considered valid. However, if the source of the confusion is foreign law, the contracting party may be excused from the contract due to ignorance of such laws.

Mistake of Facts

When the subject of the misapprehension is the contract’s clauses or terms, it is referred to as a factual error. The misunderstanding could be on the part of one or both parties.

• Bilateral Mistake: When a fact is the source of misunderstanding for both contracting parties, the agreement is said to be null and void.
• Unilateral Mistake: When a fact is the source of misunderstanding for one of the contracting parties, the agreement remains valid. Only when a party makes a mistake about the parties to the agreement or the nature of the transaction does the agreement become null and void.

The plaintiff in Ayekpam Angahl Singh and Others vs. Union of India and Others[14] was the highest bidder in a fishery auction. The annual rent was 40,000, and the rights were auctioned off for three years. The plaintiff claimed that he assumed the rent amount would be the same for all three years. As a result, he claimed that he had made the same mistake. Because the mistake was made unilaterally in this case, the contract could not be avoided.

The plaintiff in Dularia Devi v. Janardan Singh[15] was an illiterate woman who wanted to leave her properties to her daughter. The defendants took her thumb prints on two documents that she thought were in her daughter’s favour, but the second document was in the defendants’ favour, who were only supposed to execute the deed. She later filed a suit to cancel the sale deed, and it was determined that because the woman was unaware of the nature of the second document, it was void.

FINDINGS

• The burden of proof lies with the party defending the coercion.
• If the plaintiff wants to bring an action to stop a contract entered into on the grounds of undue influence, two issues must be kept in mind.
• In a large majority of cases, fraud cannot be proved by concrete and observable proof.
• The burden of proof is on the defendant to show that the misrepresentation was not rendered fraudulently.

SUGGESTIONS

• Not many people are aware of the difference between consent and free consent.
• More research papers must be written covering this concept.
• People must be informed about the difference in mistake of fact and mistake of law.
• Lastly, the most important thing everyone must be made aware of their rights when their right to free consent is infringed.

CONCLUSION

Consent is an essential component of any decision making process and serves as the foundation for contract formation. However, in recent years, obtaining free consent has become extremely difficult.  As a result, methods for determining whether consent was freely given are required.  When people are charged with coercion, undue influence, or other crimes, they tend to rely on their defences. The various methods for influencing consent are discussed, and in cases of coercion, undue influence, fraud, and misrepresentation, the contract is usually voidable at the option of the aggrieved party.  However, in the event of a mistake, the parties can only avoid the contract if there is a bilateral mistake by one of the parties regarding the important facts of the agreement or if there is a problem with knowledge of foreign law.

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[1] Indian Contract Act, 1872

[2] Ibid

[3] Ibid

[4] (1964) 2 H&C 906

[5] (1871) LR 6 QB 597

[6] Section 15 India Code, https://www.indiacode.nic.in/show-data?actid=AC_CEN_3_20_00035_187209_1523268996428§ionId=38618§ionno=15&orderno=15#:~:text=India%20Code%3A%20Section%20Details&text=%22Coercion%22%20is%20the%20committing%2C,to%20enter%20into%20an%20agreement. (last visited Jul 10, 2021)

[7] (1890) ILR 13 Mad 214

[8] 1916 MWN 368

[9] Section 16 India Code, https://www.indiacode.nic.in/show-data?actid=AC_CEN_3_20_00035_187209_1523268996428§ionId=38619§ionno=16&orderno=16#:~:text=%2D%2D%20(1)%20A%20contract%20is,unfair%20advantage%20over%20the%20other. (last visited Jul 10, 2021)

[10] AIR 1938 Bom 97

[11] Section Details India Code, https://www.indiacode.nic.in/show-data?actid=AC_CEN_3_20_00035_187209_1523268996428§ionId=38620§ionno=17&orderno=17 (last visited Jul 10, 2021)

[12] AIR 1959 MP 8

[13] AIR 1984 MP 126

[14] 1980 AIR 1447, 1980 SCR (3) 485

[15] AIR 1990 SC 1173